Investing can sometimes feel like a road trip. There are smooth stretches of highway, but also plenty of potholes, detours, and traffic jams along the way. 2025 was a perfect example of this journey. It wasn’t always a comfortable ride, but for those who stayed buckled in, the destination was well worth the trip.

US stocks marked their third consecutive year of double-digit gains, despite a landscape filled with economic twists and turns. Let’s break down what happened in the markets last year and what it means for your long-term financial journey.

The Big Picture: Climbing Higher in 2025

Despite some mid-year jitters, 2025 was a strong year for the markets. The S&P 500 climbed nearly 18%, closing near record levels and continuing its upward trend. However, the real standout performances came from international stocks, which soared an impressive 32%, and emerging markets, which outpaced even that with a 33.6% gain. US bonds also delivered solid returns, rising 6.3%.

This year’s numbers highlight the importance of diversification, reminding us not to keep all our eggs in one basket. Here’s a quick snapshot of the year’s performance:

• US Stocks (S&P 500): Up 17.9% [i]

• International Stocks: Up 31.9%[ii]

• Emerging Markets: Up 33.6%

• US Bonds: Up 6.3%[iii]

Overall, it was a year of broad gains, reinforcing the value of a well-rounded investment strategy.

This growth happened against a backdrop of significant events:

• Interest Rate Cuts: The Federal Reserve lowered interest rates by 0.75 percentage points (three separate cuts) to address labor-market concerns, even as it kept an eye on stubborn inflation.[iv]

• Tariff Uncertainty: New tariff announcements in the spring caused market jitters, but stocks rebounded as trade deals were announced.

• Government Shutdown: We saw the longest government shutdown in US history (43 days), yet the markets proved resilient, continuing to post gains during the closure.

Tech, AI, and Diversification

Technology companies remained a major topic of conversation. The tech-heavy Nasdaq advanced nearly 21% in 2025. You likely heard headlines about massive companies hitting multi-trillion-dollar market caps. While AI continues to drive excitement, it’s a good reminder that you don’t need to chase a few “big names” to capture that growth.

Technology touches almost every type of business today. By maintaining a broadly diversified portfolio, you ensure you aren’t missing out on the winners, regardless of where they appear or what industry they are in.

 A Look Abroad

For the first time in recent years, developed international markets outperformed the US significantly—the widest margin since 1993. Emerging markets did even better, rising over 33%.

This serves as a powerful reminder of why we don’t put all our eggs in one basket. Just as you wouldn’t fish in only one spot of the lake all day if the fish aren’t biting, a globally diversified portfolio helps you catch growth wherever it happens to be occurring.

 The Value of Staying the Course

If you had checked your portfolio on April 1st and then ignored it until May 1st, you might have thought 2025 was a calm year. But if you watched the daily news during April, it likely felt like a rollercoaster. Volatility is a normal part of investing, but it can be uncomfortable in the moment.

The lesson from 2025 and indeed, from the last 100 years of market data—is that patience pays off. Investors who reacted to the spring swoon or the government shutdown by exiting the market might have missed the recovery and subsequent gains[v].

Thinking about investments over the long term can help ease the urge to make hasty changes.[vi] Just like a well-planned road trip, if you know where you are going, a few detours shouldn’t stop you from reaching your destination.

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[i] US stocks performance based on S&P 500 data. S&P data © 2025 S&P Dow Jones Indices LLC, a division of S&P Global.

[ii] International stocks performance based on MSCI World ex USA Index and MSCI Emerging Markets Index. MSCI data © MSCI 2025, all rights reserved.

[iii] Bond market performance based on Bloomberg US Treasury Bond Index and Bloomberg US Aggregate Bond Index. Bloomberg data provided by Bloomberg Finance LP.

[iv] Interest rate data sourced from the US Federal Reserve statements, 2025.

[v] Past performance is not a guarantee of future results. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio

[vi] This material is intended for educational purposes and should not be considered a recommendation to buy or sell a particular security.

The post 2025 Market Review: Navigating the Rocky Road to Gains first appeared on Stalwart Financial Planning.

The holidays are often a time of hustle and bustle with crowded shopping malls, last-minute wrapping, and the endless search for the “perfect” gift. We frequently default to the usual suspects: toys that break in a week, sweaters that get pushed to the back of the closet, or gadgets that become obsolete by next season. But what if you could give something that doesn’t just sit on a shelf? What if you could give a gift that grows, teaches valuable lessons, and helps secure a loved one’s future? Financial gifts are increasingly popular among grandparents and parents who want to make a lasting impact by instilling investing for kids into their gifts.  Unlike a toy that provides momentary joy, a financial gift can help pay for a college education, fund a first car, or even start a retirement nest egg decades in advance. It’s a way to pass down not just wealth but also values, teaching the younger generation about the power of saving, compound interest, and financial responsibility.

In this guide, we will explore some of the most effective ways to give financial gifts, from college savings plans to micro-investing accounts. Whether you are looking to contribute to a grandchild’s education or want to help them get a head start on their financial journey, you’ll find practical options here to suit your needs.

Introduction to Financial Gifts

What Are Financial Gifts?

At its core, a financial gift is exactly what it sounds like. It is money or an asset given to another person. However, in the context of strategic gifting, it goes beyond handing over a crisp $20 bill in a holiday card. Financial gifts

are structured vehicles, such as investment accounts, savings bonds, or education funds, designed to appreciate over time.

Why are they valuable? Think of it like planting a tree. If you give a child a toy today, it’s like giving them a cut flower; it’s beautiful for a moment, but it fades. A financial gift is a seed. It might look small now, but with time, patience, and the right environment (in this case, compound interest and market growth), it can grow into something substantial that provides shade and fruit for years to come.

The Benefits of Giving Financial Gifts

There are three primary benefits to choosing financial gifts over traditional material items:

1. Long-Term Growth: The most apparent benefit is the potential for growth. A $100 toy is worth $0 in a few years. A $100 investment in a diversified portfolio, given enough time, can grow significantly. This growth is from the magic of compound interest, earning interest on your interest. For a grandchild or child who has decades ahead of them, time is their greatest asset.
2. Education Funding: With the rising cost of higher education, student loan debt is a significant concern for many young families. By contributing to an education-specific account, you alleviate some of that future burden, allowing your loved ones to graduate with more freedom and fewer financial shackles.
3. Financial Literacy: Perhaps the most underrated benefit is the educational aspect. When you open an investment account for a child, it opens the door to conversations about money. You can show them statements, explain how the stock market works in simple terms, and help them understand the value of patience. You are not just giving them fish. You are teaching them how to fish.

Detailed Gift Ideas

There are several vehicles available for financial gifting, each with its own set of rules, tax advantages, and purposes. Let’s walk through four popular options to help you decide if any might be a good fit for your family.

529 Plans: Investing in Education

A 529 plan is a tax-advantaged savings plan designed to encourage saving for future education costs. These plans, legally known as “qualified tuition plans,” are sponsored by states, state agencies, or educational institutions.

How They Work:
You contribute after-tax money into the account. The money is then invested, typically in a mix of mutual funds similar to a 401(k). The funds grow tax-free, and withdrawals are also tax-free as long as they are used for qualified education expenses. This includes tuition, fees, books, and room and board at eligible colleges and universities. In recent years, the rules have expanded to include K-12 tuition (up to certain limits) and even apprenticeship programs.

Benefits and Tax Advantages:

• Tax-Free Growth: The earnings on your investments are not subject to federal tax, and generally not subject to state tax when used for qualified education expenses.

• State Tax Deductions: Over 30 states offer a tax deduction or credit for 529 plan contributions (North Carolina is currently not one of them). Even if you don’t live in the state sponsoring the plan, you can still invest in it, though you should check if your home state offers tax breaks for investing in its specific plan.

• Control: As the account owner, you retain control of the funds. If the beneficiary decides not to go to college, you can change the beneficiary to another eligible family member without penalty.

How to Set Up a 529 Plan:
Setting up a 529 is relatively straightforward. You can usually open an account directly through a state’s plan website or through a financial advisor. You will need the beneficiary’s Social Security number and date of birth. Most plans allow you to start with a low minimum contribution, sometimes as little as $25.

UTMA/UGMA Accounts: Flexibility for the Future

The Uniform Gifts to Minors Act (UGMA) and the Uniform Transfers to Minors Act (UTMA) allow you to transfer financial assets to a minor without the need for a formal trust.

What Are UTMA/UGMA Accounts?
These are custodial accounts. You (the donor) or another adult acts as the custodian, managing the assets until the child reaches the age of majority in their state (usually 18 or 21). Once they hit that age, the account legally becomes theirs to do with as they please.

Benefits and How They Differ from 529 Plans:

• Flexibility: Unlike a 529 plan, the funds in a UTMA/UGMA account are not restricted to education expenses. The money can be used for anything, such as a down payment on a house, a wedding, a car, or travel.

• Asset Variety: UGMA accounts are typically limited to financial assets like cash, stocks, mutual funds, and bonds. UTMA accounts can hold virtually any kind of asset, including real estate and art.

• No Contribution Limits: While there are gift tax implications to consider (more on that later), there are no hard limits on how much you can put into these accounts, unlike the aggregate limits found in 529 plans.

Considerations for Custodial Accounts:
The biggest drawback for some is the lack of control once the child comes of age. If your grandchild turns the age of majority (age 18 in some states) and decides to spend the money on a sports car rather than college tuition, you cannot stop them. Additionally, assets in these accounts are considered the child’s assets, which can weigh more heavily against them in financial aid calculations than assets in a 529 plan.

EE Savings Bonds: The Classic Conservative Choice

For decades, savings bonds were the go-to gift from grandparents. While they may not be as flashy as the stock market, Series EE Savings Bonds remain a safe, low-risk option backed by the U.S. government.

What Are EE Savings Bonds and How Do They Work?
Series EE bonds earn interest monthly. They are guaranteed to double in value if you hold them for 20 years. If you cash them in before five years, you forfeit the interest for the previous three months. After five years, there is no penalty for redemption.

Benefits of EE Savings Bonds:

• Safety: They are backed by the full faith and credit of the United States government, making them one of the safest investments available.

• Tax Advantages: The interest earned is exempt from state and local taxes. If used for qualified higher education expenses, the interest may also be free from federal income tax (subject to income limitations).

• Accessibility: They are affordable, with purchase prices starting at $25.

How to Purchase EE Savings Bonds:
Paper bonds are mostly a thing of the past. Today, you must buy electronic savings bonds through the TreasuryDirect.gov website. You will need the recipient’s Social Security number to gift a bond electronically.

Micro-Investing Accounts: Start Small, Dream Big

In the digital age, micro-investing apps like Acorns and Stash have revolutionized how we think about saving. These platforms are designed to make investing accessible to everyone, regardless of their net worth.

What Are Micro-Investing Accounts?
These apps often use a “round-up” feature. For example, if you buy a coffee for $3.50, the app rounds up the purchase to $4.00 and invests the extra $0.50 into a diversified portfolio. They also allow for small recurring investments or one-time gifts.

How They Work and Who They Are For:
Many of these platforms offer custodial accounts specifically for children (often called Acorns Early or Stash Stock-Back). You set up the account, and the money is invested in Exchange Traded Funds (ETFs) based on a risk profile. These platforms can be an excellent option for teenagers who are comfortable with technology. It allows them to see their balance grow on a smartphone app, making the concept of investing tangible and engaging.

Benefits of Starting Early with Small Investments:
The power of these accounts lies in consistency. It shows that you don’t need thousands of dollars to be an investor. By contributing small amounts regularly, you demonstrate the habit of “paying yourself first.” Over time, those spare change contributions can add up to a surprising amount.

Considerations Before Giving

While the intent behind financial gifting is noble, there are a few logistical hurdles to clear before you write the check.

Understanding the Recipient’s Financial Situation

Before setting up an account, it is wise to speak with the child’s parents. They may already have a 529 plan established that you can contribute to, rather than opening a separate one. Coordinating your efforts ensures that you aren’t duplicating work or complicating their financial picture.

Tax Implications for Both Giver and Receiver

Under current tax law, you can give up to a certain amount per year to any single individual without having to file a gift tax return. For 2025, this annual exclusion amount is $19,000 per donor, per recipient. If you are married, you and your spouse can give a combined $38,000.

• For 529 Plans: There is a special rule that allows you to “superfund” a 529 plan. You can contribute up to five years’ worth of gifts at once (e.g., $95,000 for an individual) without triggering gift taxes, provided you treat the contribution as if it were spread over five years.

• “Kiddie Tax”: For UTMA/UGMA accounts, be aware of the “Kiddie Tax.” Earnings above a certain threshold (currently $2,500 for 2024) may be taxed at the parents’ marginal tax rate rather than the child’s lower rate.

Legal and Regulatory Considerations

When opening custodial accounts, you are acting as a fiduciary. Being a fiduciary means you must manage the assets in the child’s best interest. You cannot use the funds for expenses that are legally the parents’ obligation, such as food, shelter, and basic clothing. Keeping clear records of how funds are used is essential to avoid any legal complications down the road.

How a Financial Planner Can Help

Navigating the alphabet soup of 529s, UTMAs, and IRS rules can be confusing. Helping you with this navigation is where a professional can provide clarity and confidence.

Introduction to Personal Financial Planning

Personal financial planning is not just about picking stocks; it’s about aligning your resources with your life goals. A CERTIFIED FINANCIAL PLANNER (CFP®) professional looks at your entire financial picture, your retirement income, your estate plan, and your gifting desires to create a cohesive strategy.

How They Help with Gifting Strategies

A financial planner can help you determine:

• How much you can afford to give: Ensuring your generosity doesn’t jeopardize your own retirement security.

• Which vehicle is best: Analyzing whether a 529, UTMA, or a simple brokerage account aligns best with your goals for the grandchild.

• Tax efficiency: Structuring gifts to minimize taxes for both you and your heirs.

Seek a Fiduciary

When looking for a planner, it is crucial to find someone who adheres to a fiduciary standard. The fiduciary standard means they are legally and ethically bound to act in your best interest, putting your needs ahead of their own. At Stalwart Financial Planning, we pride ourselves on our commitment to ethical practices and client-first service. We don’t sell any products; we build plans that help you sleep better at night.

Making a Lasting Impact with Financial Gifts

As you browse through holiday gifts online or wander through department stores this season, consider the impact of a different kind of gift.

• 529 Plans offer a tax-smart way to fuel education dreams.

• UTMA/UGMA Accounts provide flexibility for a variety of future needs.

• EE Savings Bonds offer a risk-free, guaranteed return.

• Micro-Investing Accounts engage the younger generation with modern tools and habits.

Giving a financial gift is an investment in the future. It’s a way to say, “I believe in you, and I want to help you build a secure foundation.” The toy car will eventually lose its wheels, and the trendy jacket will go out of style. But an education, a down payment on a home, or the knowledge of how to manage money? Those are gifts that truly last a lifetime.

If you would like assistance navigating these options or ensuring your retirement plan allows for this kind of generosity, don’t hesitate to get in touch with a financial planning professional today. We are here to help you plan for tomorrow so that you can enjoy today.

The post Financial Gifts & Investing for Kids | A Guide for Grandparents first appeared on Stalwart Financial Planning.

Have you ever considered the striking similarities between your investment journey and a game of tennis? It’s not as far-fetched as it sounds. The secret to long-term success in stock market investing might just be hidden in the career statistics of Tennis legend Roger Federer.

Over his illustrious 25-year career, Federer has taken home an impressive 103 singles titles. What’s surprising to note is that he won just a bit over half the points he played — 54%, to be exact. Despite not winning every point, this slight advantage over time contributed to 76% of sets, and 82% of matches won. The tennis court may seem a world apart from the stock exchange, but the parallels are uncanny in this instance.

Let’s take a look at the S&P 500 index since 1990. It closed higher on slightly more trading days — again, 54%, mirroring Federer’s winning point percentage. This minor edge led to 72% of quarters and 82% of years ending positively.

This comparison underscores an invaluable lesson for novice and veteran investors: You don’t have to win every battle to win the war. Incremental wins can compound into substantial gains over time, which is the key to long-term investment success.

Like in a tennis match, the stock market has its fair share of ups and downs. Fluctuations are an inevitable part of the journey, but they should not deter your focus on the long game.

In conclusion, the secret to acing the stock game is not about making the perfect trade each time or getting lucky on a stock pick. It’s about maintaining a steady growth trajectory, capitalizing on minor advantages, and having the patience to see your investments bear fruit in the long run.

So, are you ready to serve your next investment like a champion?

The post Stock: Winning Investment Strategies Inspired by Tennis first appeared on Stalwart Financial Planning.

Change is in the air, with the election upon us. As this year’s US presidential election draws to its end, some investors question whether they should change their investment strategy based on the election’s outcome. It’s natural to wonder how a new administration, whether Democratic or Republican, might affect your investment.

Despite this seemingly significant concern, the good news is that nearly a century of financial data offers a comforting answer. It shows that stocks have trended upward, regardless of the party in power. That’s right! Whether the administration is blue or red does not matter concerning your investments in the long run.

Investment in stocks is an investment in companies, not political parties. It’s crucial to remember that the President of the United States, while influential, is one of many factors that can impact the markets. Economic indicators such as interest rates, health crises, oil prices, natural disasters, technological advancements, corporate activity, and Congressional actions, among others, also have significant bearings on the market’s performance.

History has proven that stocks reward investors, regardless of who sits in the Oval Office. Therefore, rather than making rash investment decisions based on electoral outcomes, sticking to a long-term investment strategy might be wiser.

So, as we follow the exciting, often unpredictable election season, rest assured that your investments will likely withstand the twists and turns of politics. Remember, your carefully planned investment strategy should reap the rewards, not the changing faces in the White House.

The post Impact of Presidential Elections on Investments first appeared on Stalwart Financial Planning.

Images of volatility often come to mind when we think about the impact of political dynamics on the stock market. However, a deep dive into the returns of the past century of the US stock market offers a different perspective.

Let’s consider a graph depicting the growth path of the US stock market from 1926 to 2023. The data, laid out alongside the political control of the House and Senate, reveal an interesting pattern: overall, stocks have trended higher, regardless of whether Democrats or Republicans were at the helm or whether power was evenly divided.

Does that mean political events have no bearing on the stock market? Not entirely. Congressional actions can indeed sway returns, but they operate in a complex arena where numerous other factors, such as geopolitical developments, interest rate fluctuations, and technological innovations, are also at play.

Investors should remember to invest in companies that strive to serve their customers and grow their businesses irrespective of Washington’s political climate. Therefore, it is advisable not to base investment decisions solely on the control of Congress.

The graph, showing hypothetical growth from a $1 investment in the S&P 500 Index from 1926–2023, depicts stocks trending higher under many political conditions. The values reach a whopping $14,557 under varied political control,  Republican House and Senate, Democratic House and Senate, and Mixed Control.

It’s important to underscore that past performance doesn’t guarantee future results, and the S&P 500 index does not indicate any specific investment. However, the general trend clearly shows that disciplined investors are often rewarded, regardless of who presides in the House and Senate.

In conclusion, keeping your investment strategy flexible, adaptable to multiple variables, and not solely aligned to political control in Congress would be the way to navigate the equity market effectively. Faith in companies’ intrinsic strength, growth potential, and customer commitment can steer your investment journey to higher rewards.

The post Decoding The Influence of Politics on US Stock Market first appeared on Stalwart Financial Planning.

As the warmth of spring approaches, so does my anticipation for this time of year – March Madness. The pride, energy, and sheer unpredictability are a sports fan’s dream. But for me, it’s not just about the thrill of the game but the deep-seated dedication I hold for my team, the North Carolina State University Wolfpack.

There’s something special about being a longtime fan of NCSU. It’s more than casual support or seasonal interest. It’s a profound connection, an unwavering bond that can be passed down through generations. Much like the enduring power of human ingenuity that bolsters the stock market year in and year out, the Wolfpack’s spirit is a testament to the power of collective effort, of working together to achieve a common goal.

I’ve been watching the Wolfpack play basketball for as long as I can remember. Every game, every season, holds a different story, a unique journey filled with moments of triumph (NCAA championships) and lessons of perseverance (we will get them next year). Similar to investment management, I’m not only interested in the final score but in understanding the process, the strategies utilized, the teamwork, and the skill – both on the court and the market.

Witnessing the Wolfpack combat uncertainty, coming together, learning, growing, and evolving is inspiring. Every game and season is a testament to why I enjoy this team and why I am and will always be a Wolfpack fan.

Winning, for me, goes beyond taking home the title. It’s about giving one’s absolute best, it’s about sticking together, it’s about the journey. As a long-term fan and investor, I understand the ups and downs are only steps along the journey, providing invaluable experiences. I stick with my team as I don’t abandon my investments after a short downturn.

So, as March Madness continues, I can’t help but look forward to another thrilling “Sweet 16” round. Not just for the games and predictably unpredictable outcomes but also for my team’s journey, my NC State Wolfpack. Here’s to the players, the coaches, and all of us dedicated fans who, year after year, embrace the process, the highs and lows, and remain devoted to our team. Go Pack!

The post March Madness Strategies on the Court & In the Market first appeared on Stalwart Financial Planning.

For Jill, who has worked hard and saved for years, having a secure retirement and maintaining the purchasing power of her savings is a top priority. Jill is concerned about the best place to put her money and what changes she should make to their stock market investments during this high inflation period. Jill worries that their savings may not be enough to sustain them throughout retirement in a way they are accustomed to. Should they drastically alter their portfolio to combat inflation? Or do they need to extend their working years? These are some of the questions plaguing Jill and others in a similar situation.

Inflation

Inflation is when the value of money decreases over time, making it harder to buy goods and services with the same amount of money. This decrease in purchasing power happens when prices for goods and services rise faster than wages, salaries, or retirement distributions. Inflation can reduce our standard of living if we don’t have a plan to manage it.

Historical Performance

The S&P 500 index broadly measures the U.S. stock market, comprising 500 large publicly traded companies. It is commonly used to gauge the overall performance of the stock market. Conversely, inflation represents the rate at which the general level of prices for goods and services rises, eroding purchasing power. Long term, the stock market is an excellent hedge against inflation. Historically, stocks have outperformed inflation 71% of the time since 1950, meaning investing in the stock market has been a great way to protect against rising prices. Additionally, the stock market can offer diversification. With a long-term approach, investing in the stock market is an effective way of protecting and growing your wealth, even during times with higher than expected inflation.

Investing in the stock market can help you to maximize the return on your investments, regardless of inflation. For example, investing in stocks and bonds can provide an alternative to traditional savings accounts and other fixed-income investments that are more impacted by higher inflation levels. Additionally, stocks tend to have higher returns over longer time periods than do most other financial products and services

Correlations and Patterns

Over the post-1950 period, there has been a mixed relationship between inflation and the stock market. In some periods, the stock market and inflation have exhibited positive correlations; in others, they have displayed negative or no significant correlations. It is important to note that correlation does not imply causation.

Positive Correlation

In the 1970s and early 1980s, there was a special connection between inflation and the stock market. Several factors can explain this. When there’s high inflation, companies can generate more revenue and profits, especially if they can transfer the increased costs to their consumers. Moreover, inflation diminishes the value of cash holdings, encouraging investors to look for other options like stocks.

Negative or No Correlation

During specific periods, such as the late 1990s and early 2000s, there wasn’t a significant correlation between inflation and the stock market. This could be attributed to various factors, such as shifts in monetary policy, economic conditions, or investor sentiment. For instance, when inflation is low, the Federal Reserve may implement accommodating monetary policies to encourage economic growth and bolster stock prices.

2022 was an Unusual Case

In 2022, the stock market (S&P 500) showed a disappointing return of -18.1%, while inflation was 6.5%. This has only happened 29% of the time since 1950. However, it’s worth noting that during this same period, the stock market still had a return of 11.2% before inflation and a respectable 7.5% after inflation was considered. The critical takeaway is to remain steadfast in your stock investing strategy.

Why Should You Invest in the Stock Market Despite Inflation?

Investing in the stock market is still one of the best strategies to protect against inflation and ensure that your savings maintain their purchasing power. Stocks have outperformed inflation 71% of the time since 1950, making it a great way to safeguard your wealth. Additionally, diversifying across different asset classes can help hedge against inflationary pressures elsewhere in the economy. With a long-term approach and patience, investing in the stock market can effectively protect your savings against rising prices. So don’t let inflation get you down. The good news is history shows us you can preserve your wealth by investing in the stock market.

Long-Term Investment Strategy: Stay patient and stay invested for long-term gains

At Stalwart Financial Planning, we understand the importance of investing for the long term and staying patient with your returns. Investing in the stock market is still one of the best strategies to protect against inflation and ensure that your savings maintain their purchasing power. We recommend keeping a diversified portfolio comprising stocks, bonds, cash, real estate, and other assets. In addition, our experienced financial advisors can provide guidance and advice to help you make informed decisions about your investments in the stock market.

Lessons to Takeaway

The stock market is still a great hedge against inflation, with stocks outperforming inflation 71% of the time since 1950. Diversifying across different asset classes can help you protect your wealth against rising prices. However, taking a long-term approach and being patient with your returns is essential. With the right strategy and advice from experienced financial advisors, investing in the stock market is an effective tool for safeguarding your savings from inflation. Investing in the stock market can help you protect against inflation and greatly assist in having your hard-earned money maintain its purchasing power. At Stalwart Financial Planning, we are here to help guide you through every step of the investment process. Contact us today to learn how we can help you protect your wealth against inflation.

The post Inflation High? Investing in Stocks is still Sound first appeared on Stalwart Financial Planning.

John wants to be able to retire comfortably in 20 years. He knows he will need to start saving now and make wise investment choices to make this happen. Part of John’s retirement planning includes creating an asset allocation that will allow him to reach his goals.

By looking at his current situation and future goals, John can create an asset allocation right for him. His plan should include choosing how to invest his money in different assets, such as stocks, bonds, and cash. By diversifying his investments, John can help protect himself from market volatility and potentially generate more returns over time.

Creating an asset allocation is an integral part of John’s retirement planning process, and it can help him stay on track to reach his goals.

What is asset allocation, and why is it important

Asset allocation is an investment strategy that involves spreading your money across different asset classes to diversify your risk. The main asset classes are stocks, bonds, and cash. Each asset class has unique risk and return characteristics, so by diversifying your investments across asset classes, you can reduce your overall risk while potentially earning a higher return than if you had invested all of your money in just one asset class. While there is no “right” asset allocation for everyone, it is generally recommended that most people allocate some of their overall portfolio to stocks. This allocation allows them to maximize their long-term return potential and help battle against the reduction of purchasing power that inflation brings. However, how much you allocate to each asset class should be based on your individual goals, risk tolerance, and time horizon. For example, if you are retired or close to retirement, you may want to allocate a more significant portion of your portfolio to bonds and cash to minimize your investment portfolio’s volatility.

How to determine an appropriate asset allocation for your investment portfolio

Asset allocation is a crucial component of any investment strategy. Simply put, it is apportioning your investment portfolio among different asset classes, such as stocks, bonds, and cash. The proper asset allocation for you will depend on several factors, including your investment goals, risk tolerance, and time horizon. For example, if you are saving for retirement, you will likely want to invest more heavily in stocks than if you were saving for a short-term goal. Likewise, if you are comfortable with a higher degree of risk, you may be willing to allocate more of your portfolio to volatile assets such as stocks. Ultimately, the best way to determine an appropriate asset allocation for your portfolio is to work with a financial advisor who can help you assess your individual needs and objectives.

The benefits of a well-diversified investment portfolio

Diversification is an essential element of any investment strategy. By spreading your money across various asset classes, you can minimize your risk and maximize your potential return. A well-diversified portfolio will typically include stocks (both international and domestic holds) and diversification company size(i.e., large and small), bonds, cash, and real estate. Each asset class has its own set of risks and rewards, and by including all four in your portfolio, you can strike a balance between stability and growth. Over time, a diversified portfolio can provide better returns than a portfolio focused on just one or two assets. In addition, a diversified portfolio is more likely to weather market fluctuations better than a less diversified one. For these reasons, diversification should be an important consideration for any investor.

The risks associated with not having an adequate asset allocation

One of the most important decisions an investor can make is how to allocate their assets. Asset allocation divides an investment portfolio among different asset classes, such as stocks, bonds, and cash. Each asset class’s risk and return characteristics differ, so the mix of asset classes that an investor holds will have a major impact on their overall performance.

If an investor does not have an adequate asset allocation, they may take on more risk than may be comfortable for them. For example, someone who is retired or close to retirement may want to limit their exposure to stocks since stock prices can be volatile and may not recover in time to reach their financial goals. On the other hand, someone with a longer time horizon may be willing to take on more risk to earn higher returns potentially.

No matter an investor’s goals or time horizon, it is important to ensure their asset allocation is appropriate for their situation. Failing to do so could lead to suboptimal results and put their hard-earned money at risk.

Examples of how different asset allocations can impact your investment portfolio

When it comes to investing, there is no one-size-fits-all approach. The best investment strategy for you will depend on several factors, including your age, risk tolerance, and financial goals. However, one of the most important considerations is your asset allocation. Asset allocation refers to the mix of different types of investments in your portfolio, which can significantly impact your overall performance. For example, a portfolio heavily weighted towards stocks may provide higher returns in the long run, but it will also be more volatile in the short term.

On the other hand, a portfolio with a greater proportion of bonds may be less risky, but it will also offer lower potential returns. The key is to strike the right balance for your individual needs. As your circumstances change over time, so too should your asset allocation. By periodically reviewing and rebalancing your portfolio, you can help ensure that it continues to meet your changing needs.

Summary

Proper asset allocation is one of the most important aspects of investing, yet individual investors often overlook it. Not having an adequate asset allocation is one of the most significant risks that investors face – but with a little bit of planning, it’s easy to avoid. By understanding what asset allocation is and how to determine an appropriate mix for your own investment portfolio, you can help ensure that your investments are working hard for you. A well-diversified investment portfolio can offer a number of benefits, including improved risk-adjusted returns and peace of mind. If you need help getting started, contact a CERTIFIED FINANCIAL PLANNER Professional today.

The post Is Asset Allocation Important? first appeared on Stalwart Financial Planning.

You’ve been diligently saving and investing for years, and your portfolio has grown nicely. But as time passes, your asset mix starts to get out of balance. That’s because some investments will grow faster than others, causing your original asset allocation to change. If you don’t rebalance your portfolio, you could take on more risk than what you are comfortable. Or, your portfolio might not provide the growth you need to reach your financial goals. Portfolio rebalancing is where you sell some winners and reinvest the proceeds into lagging investments. Rebalancing helps you stay disciplined, buy low and sell high, and maintain your original investment strategy.

What is portfolio rebalancing, and why is it important

Portfolio rebalancing is restoring your investment mix to its original proportions. Rebalancing forces you to “buy low, sell high.” When one asset class in your portfolio outperforms the others, selling some of your investment in that asset class reduces your exposure to it. You then reinvest the proceeds into the other asset classes. The reinvestment has the effect of bringing your portfolio back into balance.

For example, say you initially allocated 60% of your portfolio to stocks and 40% to bonds. After a year in which stocks have done well, your portfolio may now be 70% stocks and 30% bonds. To rebalance, you would sell some of your stock investments and use the proceeds to buy more bonds, getting your portfolio back to its original 60/40 split.

Rebalancing has several benefits. First, it helps to control risk by ensuring that no one asset class becomes too large a part of your portfolio. Second, it helps improve returns by forcing you to sell assets that have become overvalued and buy assets that have become undervalued. Finally, regular rebalancing can help simplify your investment strategy by keeping you focused on your long-term goals.

Portfolio rebalancing is a crucial element of any successful investing strategy. Regularly restoring your portfolio to its original proportions can help control risk, improve returns, and simplify your investment approach.

How to rebalance your portfolio

If you’re like most people, you probably have a mix of different investments in your portfolio – stocks, bonds, mutual funds, etc. But over time, the composition of your portfolio can change, sometimes quite dramatically. The transformation of your portfolio can happen for various reasons, including changes in the market, your circumstances, or the passage of time. When this happens, it’s important to rebalance your portfolio to make sure that it still meets your goals and objectives. Otherwise, you could take on more risk than you’re comfortable with or miss out on potential gains.

So how do you rebalance your portfolio? The first step is to figure out what your target asset allocation should be. Your target allocation will depend on your circumstances, age, risk tolerance, and investment goals. Once you know your target asset allocation, you can figure out how much of each type of investment you need to own. For example, if you currently have 60% of your money in stocks and 40% in bonds, but your target is 50-50, then you need to sell some of your stock holdings and buy more bonds. You can do this yourself by selling investments above your target allocation and buying investments below your target allocation. Or you can work with a financial advisor who can help you rebalance your portfolio to meet your specific needs and goals.

The benefits of rebalancing your portfolio

When it comes to investing, there’s no one-size-fits-all approach. However, one general principle that all investors should follow is regularly rebalancing their portfolio. By definition, rebalancing is the process of realigning the weightings of your investment assets to maintain your desired level of risk. Rebalancing can help you stay disciplined, buy low and sell high, and improve your long-term returns. For example, let’s say you initially allocated 60% of your portfolio to stocks and 40% to bonds. Over time, your asset allocation will become more skewed toward stocks as the stock market goes up. If you’re still comfortable with that level of risk, then no action is necessary. However, if you want to reduce your exposure to stocks and bring your portfolio back into balance, you need to sell some of your stock holdings and use the proceeds to buy more bonds. While there’s no perfect formula for rebalancing, most experts recommend doing it at least once yearly. So if you haven’t reviewed your portfolio recently, now might be a good time to take a closer look and ensure it’s still aligned with your goals.

Examples of when you should consider rebalancing your portfolio

A portfolio rebalance is when you shift the percentages of assets in your investment mix back to their original targets. You generally rebalance when an asset class has moved a long way from its target, either up or down. Rebalancing forces you to “sell high” and “buy low.” That may sound like market timing, but it’s not. The key is to have predetermined targets for each asset class, so you’re buying and selling based on your own goals and risk tolerance instead of trying to time the market. Rebalancing also keeps your portfolio focused on your goals. Over time, your asset mix will inevitably drift away from its original allocation due to different rates of return among asset classes. Rebalancing gets things back on track.

There are three main times when you should consider rebalancing your portfolio:

1. When your asset allocation gets out of whack;
2. When you experience a significant life event; and
3. When there’s a major market shift. 

Let’s take a closer look at each one:

1) If your asset allocation gets out of whack, it’s time to rebalance. For example, let’s say you have a target allocation of 60% stocks and 40% bonds. But after a strong run in the stock market, your portfolio is now 70% stocks and 30% bonds. To return to your original allocation, you need to sell some stocks and use the proceeds to purchase more bonds. Of course, you don’t want to do this too frequently because every time you sell and buy, there are transaction costs involved.

2) A significant life event is another reason to rebalance your portfolio. For example, your financial goals and risk tolerance will likely change if you retire or have a child heading off to college. As a result, you’ll need to adjust your asset mix accordingly.

3)Finally, a significant market shift is another good time to consider rebalancing. For example, let’s say the stock market has taken a big hit and is now down 20%. Meanwhile, bonds have held steady. As a result, your portfolio is much more heavily weighted toward stocks than before (assuming you didn’t sell any during the downturn). This imbalance would be an excellent time to trim back on stocks and increase your bond holdings.

By rebalancing, you can help keep your portfolio focused on your long-term goals and reduce your risk exposure when markets are volatile.

The risks associated with not rebalancing your portfolio

Investors often make the mistake of not rebalancing their portfolios regularly. This lack of consistency can be costly, leading to your portfolio becoming overweight in certain assets or sectors. Over time, this can have a significant impact on your returns. It can also expose you to greater risk if the markets experience a sudden downturn. Rebalancing forces you to sell assets that have gone up in value and buy those that have fallen, which helps to minimize your losses. It also helps to ensure that your portfolio remains diversified, which is critical for long-term success. While some short-term discomfort may be associated with rebalancing, it is generally well worth it in the long run.

Tips for staying on track with portfolio rebalancing

For many investors, staying disciplined is the most challenging part of portfolio rebalancing. It can be tempting to sell winners and buy more of the assets that have been lagging, but this can be a recipe for disaster. Instead, investors should focus on buying low and selling high, which can be difficult when emotions are involved. One way to stay disciplined is to set up alerts that remind you when it’s time to rebalance. An alert system could include setting up a calendar reminder or signing up for an automated rebalancing service. Another way to stay disciplined is to keep your long-term goals in mind. Remember that rebalancing is designed to protect your portfolio from volatility, so resist the urge to make short-term changes that could jeopardize your long-term prospects. By following these tips, you can ensure that you stay on track with your portfolio rebalancing strategy.

Summary

Portfolio rebalancing is essential to help you stay on track with your financial goals and manage risk. By regularly evaluating your asset allocation and rebalancing as needed, you can ensure that your portfolio remains well-diversified and continues to align with your investment objectives. If you need help getting started or staying on track with rebalancing, our team at Stalwart Financial Planning would be happy to assist you. Give us a call today!

The post Why Portfolio Rebalancing is Important first appeared on Stalwart Financial Planning.

Looking at broad market indices, the US outperformed both non-US developed and emerging markets during the quarter. US and non-US real estate investment trusts (REITs) recorded negative returns and lagged the US and non-US equity markets.

The value effect was positive in the US, non-US, and emerging markets. Small caps outperformed large caps in the US and developed markets outside the US but underperformed in emerging markets.

In the “Power of Markets” section, we discuss the complexity of production and how it relates to global markets.  Here we entertain producing something seemingly as simple as a pencil, but upon closer inspection morphs into something requiring vast knowledge.

To get details on the 4th Quarter and why trying to out guess the market is usually a losing battle.  Click Here for Details

The post 4Q 2016 Market Review first appeared on Stalwart Financial Planning.

For the 3rd Quarter of 2016, looking at broad market indices, emerging markets outperformed all other equity markets during the quarter. The US equity market lagged developed markets outside the US. US real estate investment trusts (REITs) recorded negative absolute returns and lagged the US equity market.

The value effect was negative in the US and emerging markets but positive in developed markets outside the US. Small caps outperformed large caps in the US and in developed markets outside the US but underperformed in emerging markets.

Next month, Americans will head to the polls to elect the next president of the United States.  Though we do not know the outcome of the election, we do believe that investors would be well‑served to avoid the temptation to make significant changes to a long‑term investment plan based upon these sorts of predictions.

To get details on the 3rd Quarter and why we think staying put in a well designed portfolio is best this election season. Click Here for details

The post Third Quarter 2016 Market Review and Presidential Election Portfolio Advice first appeared on Stalwart Financial Planning.

Today I was reading an article about 5 Things you may not know about your 401(k) plan. In the article, the 3^rd issue listed was ‘Target-date funds aren’t always on target’

I point out this article because I was just telling a new client this same thing the other week.  They had gotten started with their 401K and just went with the default investments (a target date fund based on their age).  During a recent market downturn, they became alarmed by how much their portfolio had loss, thus the reason they came to see me.  After some review of their risk tolerance, it became apparent why they became so alarmed during the recent decline in the stock market.  As they had aged and started thinking more about their retirement, the target date fund really did not match their personal risk tolerance.

You might be asking how did this happen.  Well, the target date fund is matching a risk tolerance for what they have determined is the average person invested in the fund.  In many cases, this will not match your risk tolerance.  By stopping by to see me, I was able to create a portfolio using the investment options available in their 401K that more closely matched their risk tolerance.  As this client gets closer to retirement, together we can make changes to his 401K investments so they will continue to make his risk tolerance and financial goals.

Target date funds are not all bad

The idea behind this is a good one:

• When younger investments are more aggressive
• As you get closer to retirement investments become more conservative
• Automatic rebalancing

This is good because most new clients that walk through my door are too conservative (mostly stable value investments) or too aggressive (100% equity investments).  Also, many do-it-yourselfers are reluctant to rebalance when markets are going up.  I think for people who are not into getting into the details of investing and do not want to get help from a financial professional, then target date funds are a good option for them.

Do your 401K investments match your risk tolerance and financial goal needs?

The post Are Target Date Funds Right for You first appeared on Stalwart Financial Planning.

Can you help me time the market?  This is a question I got recently.  Those of you who have been viewing my blogs already know my answer to this question, but for those of you who are new sit back and listen to my rant.

I do not think I or anyone else can consistently time the stock market.  You will hear people say they called the great recession.  This might be true, but how many times did they call for a major down turn prior to the great recession and how many times have they called it since?  History has taught us that being invested in the stock market has rewarded investors over the long haul.  With this being said, I do not think investors should try to time the market, but instead should always be invested in the market with a portfolio that is congruent with their financial objectives.

Click below to play video

The reasons why I think you should always be invested is because you never know when the next big up day in the market is coming.  If you had invested $1,000 into the market (S&P 500) in 1970, these funds would have grown to $89,678 by the end of 2015.  But if you missed out on the 25 largest days in the market, you would have missed out on 76.3% of the return and only earned $21,224.  To put it another way, by trying to time the market your returns might look like this:

$1000 investing in S&P 500 from January 1970 through December 2015 returns[1]

• $89,678 – if fully invested everyday
• $80,370 – if missed 1 Best day
• $58,214 – if missed 5 best single days
• $33,370 – if missed 15 best sing days
• $21,224 – if missed 25 best single days

The above example can be applied to your investment portfolio.  By staying fully invested in a portfolio that meets your investments objectives, you can generate better results than trying to time the market.

Most of us need to take some risk to get the returns needed to be able to reach our financial goals.  I hope you can see from the above example.  The risk you take should not be in trying to time the stock market.

[1] In US dollars, indices are not available for direct investment.  Their performance does not reflect the expenses associated with the management of an actual portfolio.  Past performance data from January 1970 – August 2008 by CRSP, performance data from August 2008 – December 2015 provided by Bloomberg.  S&P data provide by Standard & Poor’s Index Service Group, US Bond and Bills data © Stocks, Bonds, Bills and Inflation Yearbook^TM Ibbotson Associates, Chicago, regularly updated work by Roger G Ibbotson and Rex Sinquefield

The post Is now a good time to be in the market? first appeared on Stalwart Financial Planning.

Have you ever felt like someone had their hands in your pockets taking some of your hard earned saving dollars away from you?  This uneasy feeling you were having could be more real than you think.  And on top of this, it could be coming from an unexpected source.  It could be your financial advisor.  This is why finding a financial fiduciary to work with you on your finances is important.

The main culprit that could be stealing your saving dollars straight from your pockets could be a conflict of interest.  Watch this video to see an example of a conflict of interest.
https://www.youtube.com/watch?v=dBs6H1P7Wd0&feature=youtu.be

As you can see, when you find a fee-only financial advisor, you are selecting a fiduciary who has your best interest in mind.

You select a financial fiduciary to avoid these back door payments:

• Loads
• Additional fees

My wife and I were at a dinner party recently and the question came up about what I did for a living.  When my wife stated I was a Fee-Only financial advisor the person stated, “Why does that matter?”  They thought their financial advisor deserved to make some money.  They did not see the importance of getting robust investment advice that was free of conflicts of interests.  For me, I see a big difference in someone making a fair living and someone making a killing at my expense.  I think when given the opportunity to see how a conflict of interests can impact your financial future.  Most of you will readily come to the same conclusion.  I want to get the best financial advice for me.

I want you to imagine if we took this idea of, “Why does that matter?” to the professions of physicians and attorneys.  I want you to think of going to the doctor seeking treatment for a heart condition.  After seeking their advice, the cardiologist gave you a treatment that made him the most money without regard to what was in your best interests.  Next, I want you to consider going to an attorney to request assistance about a legal issue.  Upon your request, you get advice from the lawyer that he knew would enrich his practice and maybe provide you with the protections you were seeking.  In both of these examples, I think everyone sees the need for the fiduciary standard of care.  When it comes to finances, I think everyone needs the same standard of care.

I am not saying that everyone that is not a fee-only advisor is giving you biased advisor, but why risk it.  When it comes to your retirement savings, it is in your best interest to get advice that is free of conflicts of interests.

Is your financial advisor offering you advice as a fiduciary?  If you are not sure, I recommend that you ask them.  They should be able to respond with a simple, “yes”.  If not, I think maybe you ought to be concerned.

Do you think finding a Fee-Only advisor matters?

The post Why Fee-Only Should Matter to You first appeared on Stalwart Financial Planning.

Toot! Toot!  Do you remember the story of the little engine that could? Great, I want to put you in the mindset of “I think I can. I think I can”.  When it comes to starting a savings plan, this is the mindset you need.

To build a substantial nest egg, you do not have to win the lottery, get a huge inheritance from your great aunt, or marry a millionaire.  To create a nest egg on which you can retire, you can use the following formula:

Regular Savings  x  Time = Substantial Nest Egg

The two components of this formula are simple:

Regular Savings

Regular saving is the little engine that could.  You do not need big chucks of money at a time, but consistently putting even small amounts of money into a savings plan will add up.  By putting the money to work in your savings plan at regular intervals, once a week, a month, or quarter, you use dollar cost averaging.

I can remember when I started my savings plan.  I was recently out of college and wanted to invest. I was saving just $25 a month through a DRIP (Dividend Reinvestment Plan).  I must say, when I got my first dividend statement of 5 cents, I was super excited.  I was showing the statement to everyone that came by my apartment.  My girlfriend at the time laughed at me.  She could not understand why I was so excited over a nickel.  Overtime, as I continued to put my money into the DRIP plan, the dividend amount grew to $1, $5, $50 and over $100 after several years.

Time

The second part of the equation is time.  Time is the more powerful variable of the equation and does most of the heavy lifting.  And, if you start your savings plan now (if you have not already started a saving plan), it is the easier of the two steps to do.  The key part of that phrase is the word now.  Again, you need to think like the little engine that could.  Even if you feel the mountain is tall and steep, you must remember the mantra, “I think I can. I think I can.” Once you accept this mindset before long, you will be climbing up the mountainside.

Once you accept the mindset of the “little engine that could” you are on your way up the mountainside of creating the nest egg you desire.  I often tell clients that once you start a regular savings plan, and begin noticing the powerful effects of compounding then you too will get excited and begin saying, “I knew I could. I knew I could”.

Have you started your savings plan? Are you in the, “I think I can” or the “I knew I could” phase of your savings plan?

The post The Little Engine That Could first appeared on Stalwart Financial Planning.

Does your portfolio measure up? Does your portfolio have multiple dimensions?  Is there both depth and width?  A proper financial portfolio should have both depth and width.

Most of us have heard the phrase, “Don’t put all of your eggs into one basket”.  When it comes to managing a portfolio many will interpret this statement to mean diversify and they would be right.  The problem here is that several of us think diversification only applies to having multiple stocks. 

In your portfolios, you want to have both depth and width.

Depth:

Depth is having multiple positions in your portfolio.  With depth in your portfolio, one company, or one industry cannot wreck your portfolio if it falls on difficult times.  One way to have depth is by holding multiple stocks.  Another way to accomplish this is through a mutual fund or ETF (Exchange-Traded Fund).  An example of depth is holding the S&P 500 index.  With this example, you now have depth in your portfolio.  The depth is in you holding stock in 500 of the largest companies in the United States.

Width:

Even if you hold the S&P 500 Index fund, this does not add the second dimension you need for a good portfolio.  You do not have width.  To have width in your portfolio you need to add different asset classes.  You want to add width by adding sectors such as international stocks, small cap stocks, short-term bonds and etc..  Within each of these sections, you also want to have depth.

When you put these two dimensions into play within your portfolio, you cover more area and thus make your overall portfolio more stable.  Having a two dimensional portfolio can be as simple as having a well-defined Investment Policy Statement (IPS).  Once you have your portfolio established, still remember to:

• Re-Balance at least annually
• Adjust allocation according to age or investment life cycle

How does your portfolio measure up?  Does your financial portfolio have both depth and width?

The post How does your Portfolio Measure Up first appeared on Stalwart Financial Planning.

Is your financial portfolio lost in the wilderness?  Does it feel like your portfolio has taken a short cut to nowhere?  This is the feeling many do-it-yourselfers get when they put together their own portfolios.

Their portfolio makes them feel like they are meandering through the back sections of the Great Dismal swamp. The reason for this feeling is that they did not use an Investment Policy Statement (IPS) when putting their portfolio together.  An IPS is like a Global Positioning System receiver or GPS.  An IPS keeps your portfolio on track.  It keeps your portfolio working toward your goals.  Moreover, when you get off course, it acts as a GPS and directs you back to the route you need to be following.

You are probably asking, what is an IPS.  An Investment Policy Statement is simply writing down the asset allocation that gives you the best chance of reaching your financial goals.  Here is an example:

Depending on where you are in your life, just starting out, thinking of retirement, or planning a gifting strategy, your IPS will be different.

An IPS keeps you on course in three ways:

• Provides guidance when adding new portfolio positions
• Provides clear direction when re-balancing
• Provides warning if you fall in love with a single investment

If you have an IPS, it gives you direction when you look to add that next hot stock tip you got over lunch.  For instance if this hot tip is a Large Cap Growth stock and you are already over your asset allocation target for Large Cap Growth you have two choices.

1. Do not buy this new hot tip
2. Sell enough of your Large Cap Growth position to allow you to purchase the hot tip

As you can see, an IPS works like a GPS by keeping your portfolio allocations on course.

Another way your Investment Policy Statement GPS keeps you on track is when it comes to re-balancing.  Most of us have heard we need to re-balance at least annually, but many fail to do this.  If you have a written IPS, it is easy to see how your portfolio has moved and you can quickly use the IPS as a GPS and get back on course.

Many do-it-yourselfers can fall in love with one stock or mutual fund.  This position can start to take over their portfolio.  By having an IPS, it is easier to manage your portfolio based on the facts.  In other words, when ACME Computers becomes 33% of your portfolio, you can tell it is time to trim some of this position no matter how much it has gone up.

Get on Course

Now go ahead and write out your Investment Policy Statement today.  If you need some help, you should contact a Fee-Only Financial Advisor such as me to assist in putting your Investment Policy Statement together.

Is your portfolio’s GPS working?

The post A GPS for your Portfolio first appeared on Stalwart Financial Planning.

Who are better investors men or women? I was talking to a business owner in my office building last week and he asked me this question, “Who are better investors men or women?” He was shocked when I gave him an immediate response. He then stated, “You did not even have to think about it”.

The answer to the question is one that has been written about many times. I think part of my colleague’s amazement was not in the speed in which I responded, but with the answer itself. The response of women is often a surprise to men. Studies have shown the reason women are better investors has more to do with the how:

• How they trade
• How they select investment vehicles
• How they get their information

How they trade:

In general, men are more active traders than women are. Back in 2008 and 2009 the Vanguard Group, found that men were more likely than women to sell their shares when the market was melting down. The author of this study, John Ameriks, said men tend to think they know what they are doing even when they do not know. When men think they know, they have the tendency to make trades thinking they are improving their position, to learn later that they have not.

Stocks, ETFS, Mutual Funds:

According to Mintel Group and Brinker Capital, men tend to invest in stocks, ETFs (Exchanged Traded Funds), futures and options. On the other hand, women invest in mutual funds. I think the reason for this is the thrills of being able say you are playing the market. When men are around the water cooler, they want to state the company they are invested in. It is more exciting to say I am in Apple or Google instead of saying I am investing in an S&P 500 Index fund.

Asking for Directions:

As men, we all have heard the stereotype of never wanting to stop the car and ask for directions. Well, it looks like we are stuck with the same stereotype again. According to LearnVest.com 87% of women would like to work with an advisor. Men like to think they can figure it out on their own. They like to do this by taking in the infotainment (this is information delivered as entertainment) available to them through TV, blogs and magazines.

The picture is not all rosy for women investors. I heard a speech last week and the speaker Hilda Pinnix-Ragland from Duke Energy was talking about the financial gap between men and women. In fact, the average net worth of a single white female age 36 – 49 is $42,600 (which is only 61% of her male counterpart). The jaw-dropping statistic mentioned by Mrs. Pinnix-Ragland was that the African-American female average net worth for this age group was just $5.
As you can see, both men and women have a lot to learn from each other when it comes to investing.

What can you do better to improve your net worth?

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The post Better Investors Men or Women? first appeared on Stalwart Financial Planning.

With the stock market at or near record highs what do you do?  I suggest you think like a farmer.

It was just a few years back in 2007 – 2008, when we were all lamenting how much the stock market had fallen.  The Dow Jones Industrial Average was cut in half and many feared it would continue to drop.  However, after a 7,800-point gain in the DJIA, I hope we have not forgotten the lessons the 18 months of plummeting stock markets numbers taught us.  It is time to think like a farmer and rebalance our portfolio.

When I was starting out my mentor in Fee-Only Financial Planning taught me the analogy of the farmer.  He said you have to think of equities (stocks, stock mutual funds) as your crops and fixed income investments (bonds, CDs) as your pantry.

Equities = Crops

Fixed Income = Pantry

He went on to state, with crops you plant them in hopes they will grow and be bountiful.  When they have grown there comes a time you will need to harvest your crop.  When harvesting your crop you will move the goods into storage for safekeeping.  You keep your harvest in storage because you know it will be there when you need it.  If you leave the crop in the field too long a storm could come by and wipe out all your hard work very quickly.

With your portfolio, you want to behave much like a farmer.  With the stock market at record highs, it is time to see if your portfolio is in balance with your investment policy statement (Overarching asset allocation for all your investments).   With the recent run up in the stock market, the equity portion of your investment portfolio might be over weighted.  If this is the case now is a good time to trim some of those gains and place them into fixed income. In other words, it may be time to harvest the crops.

The idea of harvesting some of your gains while the market is going up is counterintuitive for some.  If you review your portfolio and it is out of balance, now is the time to make adjustments.  If you adhere to your investment policy, you will still have equities in the market to continue to take advantage of any upside in the market and at the same time, you have put into safe keeping those hard fought gains over the last four years.

Are you ready to think like a farmer?

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The post Stock Market is Up, What to do Now first appeared on Stalwart Financial Planning.

 REIT (pronounced “REET”) is an acronym for Real Estate Investment Trust.  A REIT is a security that sells like a stock but allows you to invest in commercial real estate.  REITs can invest directly in properties or they can invest in mortgages.  Investing in REITs can be a good way to add Commercial Real Estate to your portfolio without going out and purchasing investment properties.

Pros:

• Real Estate with the liquidity of stocks
• Historical low correlation with overall stock market
• Higher yields

Because REITs are securities that trade like a stock, it allows you to have Commercial Real Estate in your portfolio and still maintain considerable liquidity.  Since you do not have to endure the long buy and sell cycles of normal real estate transactions, many investors like this positive.  Historically the correlation between REITs and the overall stock market is negative.  This means when stocks move up or down, REITs normally move in the opposite direction.  This is great for creating a well-diversified portfolio that performs well in both Bull and Bear markets.  Another positive trait of REITs is their tax structure.  REITs are required to pay out 90% of earnings each year to shareholders in the form of dividends.  This rule makes REITs a high yielding investment.

While REITs offer, many positives there are also Cons:

• Fees
• Tax inefficient

REITs typically have higher associated fees than other mutual funds.  This is not the case with all REIT funds though.  For example, the Vanguard REIT Index fund has an expense ratio of 0.10%.  You just have to do your homework to insure you are keeping the expenses low.  Since REITs must payout 90% of their earnings in dividends, this makes them tax-inefficient.  For people in higher tax brackets, it is wise to hold REITs in tax advantaged accounts such as IRAs or Roth IRAs to avoid this con.

A REIT can be a good addition to a portfolio if added in the right ways and percentages.

Do you plan to add REITs to your portfolio?

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The post What the Heck is a REIT? first appeared on Stalwart Financial Planning.

Is investing like fishing?  The more I think about it.  The more I believe it is true.  In both investing and fishing, you are uncertain if you will catch a winner or not.

In fishing, you first select the target species you want to catch.  Selecting the target species will dictate the body of water you should pick.  If you are targeting a brook trout, you might fish a remote mountain stream.  On the other hand, if you were after a blue marlin, you would go fishing in warm ocean waters.

With investing, the concept is the same.  In investing, selecting the target species is synonymous to asset allocation.  Asset allocation is determining what types and percentages of stocks, bonds, real estate, commodities, etc., you will hold in your portfolio.  You select the type of asset you are going after and then you try to catch a winning stock or mutual fund in that category.

Whether casting your line for trout on a cool mountain stream or trolling the aquamarine currents of the Gulf Stream for marlin, you want to catch winners.  When out fishing, you will soon ask yourself, “How can I increase my chances of catching trophy size fish?”   If investing, you would be asking yourself, “How can I increase my chances of finding winning assets?”  The answer to both questions is diversification.  Even as a “Not so Good” fly-fisherman, I know to be successful and catch fish, you need to have diversification in your fly box.  Successful trout anglers understand the need to have a variety of proven flies in their tackle box.  Their lures vary by:

• Type
• Size
• Color

The same tenant holds true with an investment portfolio.  You need diversification of assets in a portfolio.  Just as one would not go fly-fishing with just one type of fly, all in the same size and color, you should not do this with your investments.  Many times people make just this mistake with their company stock.  They overly invest in a single asset.  If you have more than 10% of your investments in one company (be sure to include the holdings in your 401K too), it is like going to a trout stream with only one type of fly, all in the same size and color.  Your portfolio should be diversified by containing:

• Several proven companies
• Companies of different sizes
• Companies from different geographic locations (International companies) 

If you have a diversity of flies (by type, size, and color) in your fly box, you stand a better chance of catching a trophy fish.  The same is true with a diversified portfolio.  Diversification will increase your chances of having an overall winning portfolio.

What kind of winners are you trying to catch?

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